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Yields & cash flow are all fine and good, but at the end of the day, aren't total returns what matter? When I look up the 5- and 10-year performance graphs of various REITs and VNQ, then compare them to a low-cost S&P 500 index ETF like VOO, how come the latter almost always shows a considerable higher return?
Am I misinterpreting the graphs?
Jussi Askola, CFA profile picture
Look a longer term chart. REITs generated nearly 14% per year over the past 20 years compared to just 8% for the S&P500 (pre-crash).

Total return is what we are here for: seekingalpha.com/...

many of these REITs yield 10% and have 100-200% upside in a recovery.
@Jussi Askola You are at least close to right but it's hard to find an apples/apples comparison. Since its inception in Sept 2004, VNQ average total return has been 8.5%. Comparing it to VTI, VOO, VIG, none have existed for 20 years; VOO for less than 10 years. VIG = 9.1% since 2006; VTI = 7.6% since 2001.

Looking at traditional funds (all Admiral class, all Total Return) VGSLX (RE) is 10.18% since inception (Nov 2001); Tot Stock Market = 6.63% since Nov 2000; SP 500 is 6.16% since Nov 2000.

Can you provide a better set for comparison?
Jussi Askola, CFA profile picture
VNQ is a market cap weighted ETF. It is not representative of the REIT sector.

Check out the REITWatch reports from NAREIT for better comparisons.
17 Mar. 2020
If REITs are so safe during a recession, why is recommended SRC down 53% in the past month?
Jussi Askola, CFA profile picture
During the average recession over the past decades, REITs provided nearly 2x better downside protection than the S&P500. This lower volatility makes sense because REITs generate steady and predictable cash flow from long term leases, that are backed by durable real estate portfolio.

This time is an exception. What is unique about this bear market is that it is caused by a global health crisis. People are advised (or forced) to stay at home as much as possible and to avoid crowded places. The market quickly turned this into a highly bearish scenario for real estate because if people are just sitting at home, they won't need offices, malls, hotels, movie theaters, or any other property types anymore. We think it is overdone and we are buying deeply discounted opportunities right now: seekingalpha.com/...
You said: There's also a big misconception when it comes to taxes. A lot of investors refuse to invest abroad because of withholding taxes. What they ignore is that most countries have treaties to avoid double taxation.....

How does this work in an IRA account?
Jussi Askola, CFA profile picture
@aceman123 It depends on many factors, including where you live and where you invest. However, generally speaking, it is preferable to invest in Foreign REITs through a taxable account.
yazzer profile picture
Wow - this is what happens when you buy high yield...total equity annihilation. And yet, the articles keep pumping.
Jussi Askola, CFA profile picture
What do you mean? We are not in a bear market. Things go up and down. Nothing unusual. Buy the dips and be patient.
What do you mean? S&P500 is down -27% from recent peak, high yield REITs recommended down much more than that, NOI of the properties in jeopardy as the public consumers are basically on lockdown until further notice, and you think you are a landlord buying real estate, we are not in a bear market, and nothing unusual?!? WAKE UP MAN!
Jussi Askola, CFA profile picture
And as in every crisis, those who buy at deeply discounted prices, will profit from the situation in the long run. This time won't be any different.
Chris Lau profile picture
I put more than half my net worth in cash. For the last few years waiting out for what is unfolding now. Be picky in what you invest in.
Best of luck in the REIT space.
Jussi Askola, CFA profile picture
Thank you for your comment. We also hold some cash. Much less than you, but we also hold some precious metals and private property loans which are now gradually reinvested in discounted REITs.
DeepValue7 profile picture
Note RQI a CEF run by Cohen and Steers kills VNQ over a decade including fees. And...having a manager like C and S to move you in and out of the best sectors worth its weight in GOLD...
Jussi Askola, CFA profile picture
@DeepValue7 However, since inception is has underperformed the passive benchmarks despite taking much more risks. I would not invest in RQI, unless I got a great discount to NAV. Overleveraged, high fees, and closet indexing. You'll do better by building your portfolio yourself: seekingalpha.com/...
VOO and VIG (to name just 2) have soundly beaten both of them long term.
@glinsight Re VOO and VIG, when you say "soundly beaten" are you talking about total return, or just price appreciation? Because VNQ and (especially) RQI have significantly higher yields than both VOO and VIG.
Pablo profile picture
STOR down huge. $19??? Amazing.
Whats your thought on ARI? It drops down to $8 today. They announce buyback prog. What does it mean to small investors?
Jussi Askola, CFA profile picture
I think that there are better opportunities among its peer. We invest in them at High Yield Landlord: seekingalpha.com/...
yikes, timing is "everything"? Would appreciate performance update.
Jussi Askola, CFA profile picture
I disagree. "Time in" the market is what matters. "Timing" in the market does not work. You cannot hop in and out of the market.

Focus on the income. Do not panic. Buy the dips. This is what we do at High Yield Landlord: seekingalpha.com/...
That statement of "time in the market" assumes that the future will look like the past but there simply is no way to know that. A statement like time does not work is not always true. There are nuances, everything is not black and white. The market has gone many many years without going up and not everyone has time.
Jussi Askola, CFA profile picture
We invest for income first (average yield is near 10% right now). We have all the time in the world: seekingalpha.com/...
terryongarland profile picture
I have made some great returns on properties over time..yet my problem is..I live in Ca where State income taxes crush my profits..
Nascent Trader profile picture

Appreciate your thesis. But in this market situation, we should expect layoffs, if not happening already. People who signed their leases will fail to make payments. During normal times, sure, real estate offers a stable income, but so do stocks, if not better.

And it is nearly impossible to find an investment that offers both safety and a better return than the equities market (they may exist at the beginning, but alas, in the public market, people will flood in to diminish the reward).

No matter what assets you'd invest in, there is one thing certain: investing is not easy.

Simple methods and strategies are easily replicable, which would invalidate their effectiveness as more people using those techniques.

And as some mentioned, putting half of your net worth in something is not a prudent move, but I'm not the one to judge as everyone has their own risk appetites and investment horizons.

Wish you the best luck to tread through this crisis.

Be safe.
Jussi Askola, CFA profile picture
@Nascent Trader Thank you for sharing. Note that even during 2008-2009 most tenants kept making payments in full and on time. Even in times of crisis, people need a roof over their day, a job somewhere, and a grocery store to buy food. The demand is somewhat cyclical but the need for real estate does not go away as long as you are in a good market.

Note that REITs offer at all times better income than stocks, and provided better total returns over the past many decades.
mREITs profile picture
We are not even close to bottoming out yet, and this will continue to drag on and on.

I think you really made a big mistake buying into an obvious dead-cat-bounce.

That said, I still like to read your articles.
Jussi Askola, CFA profile picture
It is not possible to predict a bottom. We know however that prices are very attractive and right now and so we are buying in phases. We share all our transaction here: seekingalpha.com/...
What’s your opinion on
SPG in general ?
Jussi Askola, CFA profile picture
I think that it offers a great opportunity at the current price, assuming that you are long term oriented and won't panic sell. This will be very volatile. In the long run, I expect material outperformance from it. We invest in some of its peers at HYL: seekingalpha.com/...
Does it mean your waiting
For The price to drop or
SPG at $77 is a buy now ?

Would you personally invest in SPG for long term ?
And when ?
Pablo profile picture
SRC getting slaughtered. Have not bought more. Did buy 700 shares of STOR at $21.55 and 500 of ENB at 26.05.
Jussi Askola, CFA profile picture
@Pablo Everything is. Even O is dropping like a rock.
Pablo profile picture
Cover me. I'm going in. Double down on SRC.
@Jussi Askola Jussi, I hope you have some money left today. I read your story on buying SRC yesterday; today saw it drop 35%. I didn't buy then or today. Instead, I bought $40,000 of SDS at yesterday's close. Silly ETF for silly times. Up 22.6% today.
SRC looks interesting under 30 now . . .
Jussi Askola, CFA profile picture
Crazy times! These are amazing opportunities. We are buying: seekingalpha.com/...
I think half your net worth in deep, deep trouble.
Jussi Askola, CFA profile picture
Real estate is one of the safest and most durable asset classes. It is not immune to near term volatility, but rent keeps getting paid, and the need for real estate never goes away. Protected against inflation.

I would worry more if half of my net worth was in regular stocks.
"Real estate is one of the safest and most durable asset classes."

Agreed. Too bad you are invested in REITs rather than Real Estate. REITs are a separate asset class, and being publicly traded on large exchanges they behave closer to stocks than they do to real estate. Your refusal to view, analyze, and treat them as such is what puts you in trouble. You are not a landlord, you are a REIT investor that thinks he is a landlord and encourages others to pay you to think and act in the same fundamentally flawed manner. This may seem harsh, but it is far less harsh than Mr. Market is and will be to those that have such misunderstandings.
Jussi Askola, CFA profile picture
REITs do not own anything else than real estate. To say that REITs are not real estate is wrong. Their returns are near perfectly correlated in the long run.
Bocaita profile picture
Why did EPR go down so much more, since the Corona Crash, than the average REIT --
-52% vs -20% for the VNQ index (from 2/21 to 3/13)
Is it because --
a) Mr.Market thinks its riskier ie its tenants' businesses aren't well understood/appreciated, and riskier assets don't do well in panics ?
b) the 'glamour"/Big Boy/"safe" stocks, including REITS, do better in panics ?
c) EPR was already paying a very large dividend and thus seen as riskier ?
d) or, Its just too short a time frame to matter ?

In fact, EPR came up short against VNQ from June of last year to just BEFORE 2/21 (about 22% difference between EPR and VNQ

Personally, I dumped EPR a while ago -- guess I just don't have the guts that some folks do for the "volatility" they lust after ! (and I don't have a 99 year time-frame, either !)
Jussi Askola, CFA profile picture
Thank you for your comment @Bocaita

Yes, I agree with you. I believe that a large part of the drop is simply the result of misconceptions. The market assumes that EPR is the operator of the assets. I often see this misconception here on Seeking Alpha.

Investors fail to realize that EPR is the landlord, not the operator. EPR earns steady rent checks from 13 year leases. We are buying EPR and similar companies at High Yield Landlord: seekingalpha.com/...
Really? This type of comment truly proves that you have a lot to learn. You really think the market does not understand EPR at all and it is all a misconception and that investors do not understand what a REIT is and that EPR is not a landlord. Yeah, only you and your colleagues pushing a service on SA truly understand EPR. You act like a lease is a guaranteed form of payment. I can not understate how naive this statement is and I am being kind. The market fully understands who EPR is and what it does.
Jussi Askola, CFA profile picture
EPR sold off similarly at many times (incl. the GFC) and sharply recovered thereafter. If the market was efficient and understood this business perfectly, it would not move up and down by 50% in the matter of weeks.
Magdalena Pacholska profile picture
Hey, Jussi. Thanks for mentioning a UK REIT. Can you link me to your other articles with other UK REITs, if you have? Any Swedish/Canadian/Polish mentioned anywhere?
Jussi Askola, CFA profile picture
@Magdalena Pacholska Thank you for your comment. Our articles on international REITs are behind a pay-wall. They are exclusive to the 1,500 members of High Yield Landlord. Feel free to take a 2-week free trial to take a look: seekingalpha.com/...
GIT315 profile picture
Do yah think!
It will be interesting to see what happens to commercial (esp Office) as a result of this. This will open many companies eyes as to how productive people can be working remotely. Furthermore you have a younger workforce craving this kind of arrangement. I own O and AMT. added some more to AMT last Thursday when the bottom fell out on absolutely no news other than people freaked out.
Jussi Askola, CFA profile picture
Or how "unproductive" they are working remotely. I believe this is more likely to happen.
My thoughts exactly. The outcome of all this may do permanent damage to certain types of office properties.
@Jussi Askola That may be true, time will tell. Here are a couple of my observations: 1) Quite a large number of younger workers are highly unproductive in the office setting already. I see this everyday and it's far worse than I've ever seen it in my 35 years of high tech employment. 2) Telecommuting is far cheaper for everyone and anywhere corporate america can shave costs, they will.

Once everyone gets set up and used to remote working, which doesn't take long, it will be hard to undo. I HATE working from home and go into the office as much as possible. BUT, over the past few years I have been forced to work with teams around the world, meetings, presentations, brainstorming, developing products etc. sitting there with a headset on staring at materials being presented on my screen and conversing with dozens of participants.

The technology works extremely well. Covid may accelerate this trend and I can think of many types of businesses that may soon learn they can function just fine without a whole lot of office space.

It will also be easy and cheap to build camaraderie amongst team members by way of team building through local meet-ups... what we call 'offsites' today.
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